Relation between corporate diversification and firm value

Considering the increasing global competition and complex global environment,in order to use benefits of synergy, firm diversify their business. During the 1950s and 1960s many corporations hoping to achieve benefits of diversification attempts to diversify their business. Theories that developed by the late 1970s ,generally considered diversification as a beneficial strategy, while some studies after this period, referring to the costs of this action, mainly considered diversification as an activity which led to the depreciation of firm value. This view doesn’t last for a long time and subsequent studies showed that corporate diversification alone does not drive the discount or premium, rather the effect on value differs from firm to firm and is heterogeneous across certain industry settings, economic conditions and governance structures. So absolute attitude to this strategy does not seem correct .In general the effectiveness of this strategy depends on whether the benefits of diversification exceeds the costs of the action or not .In this study it will be tried to review previous studies about corporate diversification and firm’s incentives of diversification and further more the impact of this action on firm value will be examined.